Alexa Skills Evolution: From the Very Beginning to Present Days
Amazon created Alexa in 2014. Today this digital assistant became widely known thanks to its powerful capabilities, numerous amusement skills, really cool self-deprecating commercials and some teasing episodes of TV shows like South Park or Family Guy. How did it work its way up from a simple guide into the smartest and most beloved voice assistant? What strategies and decisions have led Amazon to the 100 million Alexa-powered devices selling? Let me show you how it happened.
Back in 2014, when Amazon was placing Echo on the market, the company represented it as a smart speaker for music controlling and little else. But when Alexa powered Echo and made it intelligent, smart speaker quickly evolved from a handy music-playing gadget into a multiplying smart home hub. Not least because manufacturers and users were looking for a simple and multipurpose method for controlling a lot of stuff. The idea of voice commanding seemed brilliant in its simplicity: one could get the necessary information or turn on the music without even moving. The great thing about that was the speaker’s capacity to catch voice from another room — there was no need to carry it around. That’s when manufacturers of smart home appliances quickened: thermostats, lightbulbs, robot vacuums, and even saltcellars were all controllable with Alexa. After this success, Google, Microsoft, and Apple started moving forward the smart hub too. However, by that time the market was flooded with Echo devices, and manufacturers of smart home appliances were already tuned to it. Amazon knew success is wrapped up in the integration capability and worked actively towards that end.
The second great idea that set Alexa apart from its competitors was born out of a desire to understand their customers: that’s why Amazon decided to open its ecosystem to device manufacturers and third-party developers. As a result, Alexa skills filled up with new useful content and its capabilities expanded. When smart assistants started to take off, the first place was prophesied to Google, because it has a search engine and a great amount of personal data of users. But it took a while before the company could find a good use for its capabilities, besides, Google took it really slow on opening its ecosystem. This allowed Amazon to get a head start and gain a reputation of the best assistant in the eyes of customers.
Smart strategies
In their 2008 SEC filing, Amazon described the vision of their business as to: “Relentlessly focus on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise.”
The main reason Alexa gained currency is Amazon’s higher strategy: the company has been consistently losing money with Alexa in favor of expected future returns. Amazon’s marketers have always been and are now having a great foresight on the next cash cow: during the Black Friday sales, all the Alexa-powered devices were sold at a reduced price.
This sacrifice sale had a few reasons:
More sales made through smart speakers
If you purchase the device, you probably use Alexa’s ecosystem and most likely one day you would buy something with your Alexa device. Most probably you would buy from Amazon. This way Amazon creates loyal customers and a perfect example here is Amazon Prime membership. For the record, Prime members spend an average of $1,400 per year vs. $600 for non-Prime customers and they shop on Amazon twice as frequently. And the company comes up with new ideas and discounts to drive customer loyalty quite regularly.
More Amazon private labels’ sales
Amazon is huge. It has user information, it has search data. And yes, it has its own brands although it’s being a little secretive about that. These labels are expected to reach $25 billion in sales by 2022 and will play an increasingly important role for Amazon. An important point is that with voice ordering, users don’t scroll through product listings — they trust implicitly to Alexa while it works as a search engine and returns quite specific search results. If a search falls within a category in which Amazon offers private-label products, Alexa recommends the private-label products 17% of the time. Given that these products represent only about 2% of the total first-party unit volume sold, the online retailer clearly positions its own private labels favorably in voice shopping.
More customer information
You can’t be surprised by that today. Usually, manufacturers of smart devices collect user data in order to improve their services and rethink customer experience. Of course, that helps companies to sell more, but it’s not the point here. Amazon’s media branch, Amazon Media Group (AMG), gives brands the ability to sell their products to Amazon customers based on insight information. And it is critical to underscore that this ad business has been growing extremely fast: AMG revenues doubled year-on-year to $4.6 billion in 2018. Taking into consideration that the smart speaker market is also evolving and Alexa-enabled devices sales go up, AMG may soon get a big share of the ads market.
Alexa developers
In 2017 Amazon announced news it had launched development tools that would allow device makers to build commercial products powered by Alexa. Other Alexa capabilities can also be embedded in the devices, including content streaming, weather reports, voice apps and a host of other Alexa skills. This way developers could tell Alexa what their devices are and what skills and capabilities people need.
Then Amazon announced Alexa gaming skills challenge for developers, where winner could get a valuable prize (money, gadget, etc.). That was a smart move, indeed: such financial incentives expand the number of skills and the number of high-quality services for customers in the long-term. And developers are interested in winning prizes and media coverage, so it’s a win-win situation.
But why games?
Why gaming and not all those smart home appliances skills? Again, it’s all about the strategy. Gaming and entertainment skills were popular since the first day Amazon announced its development challenge and they are still highly sought today. The fun way people prefer to interact with Alexa is explicable: entertaining content accustoms us to new interfaces, helping to break down barriers and embrace new technologies. It’s a kind of a training mode for children and adults — games teach us something new, they reinforce our skills, and model the world around us.
Smartphones have changed the gaming industry: game developers reconsidered game interfaces and monetization. They’ve created new mechanics and new game genres. As a result, Angry Birds and Pokemon Go popped out, and the same is just about to happen with voice interfaces.
Games have a huge field of opportunities for developers. What ultimately matters in this field is not infrastructure resources, but rather the good ideas and mechanics. For example, Adobe survey has shown that 63% of smart speaker owners have one in their living room where all the family members spend time with each other. And that’s a great opportunity to build up a whole voice game industry for a group of friends gathered together or for busy parents wondering how to employ their child. Some savvy startups like X2Games and Sensible Object have already grabbed the chance and created a hit combo: they integrated voice control with the most popular hobby — tabletop games. Alexa here enlarges the board game with an interactive experience, it gives instructions and guides players through the game. Taking into consideration a growing demand for tabletop games over recent years, it can be said with confidence that this sector has great financial clout:
Alexa’s skill number is growing exponentially: in September of 2018 Alexa had 50000 skills, in December that was 70000. Just a month later, in January 2019 Alexa skills top 80000. This progress offers very positive prospects and confirms the strategy is right. Amazon releases new development tools, growing skills number enlarges user options and they find new means of communication with Alexa; the ecosystem expands; therefore, sales of Alexa-enabled devices are soaring. Ecosystem exposure to third parties has its positive aspects — now Alexa has thousands of devoted users ready to put their back and finances into its evolvement.
The sky is the limit
Today Alexa may be found nearly everywhere: Amazon and other manufacturers’ smart speakers, smartphones, other smart devices, and even platform Alexa for Business, which enables companies to integrate Alexa into a smart office. That’s a lot of ‘smart’, right? Now voice-enabled assistant can do a lot of stuff, but in fact, recent surveys have shown that most people still are not very creative about how they use it. They are using Alexa skills for fun mostly — while spending time with their family or doing some dull routine work like dishes, laundry folding, etc.
This is fine because it’s an adaptation period. Besides, voice interfaces still have to adjust to the needs of modern users before the technology becomes commonly used. There are still some challenges to be overcome: voice control has to be clear and comprehensible — manufacturers have to optimize skill discovery to help users and to equate developers. They have to reconsider consumer choice in order to organize an unrestricted competition (keep in mind Amazon private labels and thousands of brands willing to promote via voice search). Things aren’t great with monetization, notifications, skills classification — all that should be repeatedly improved.
But given the number of people involved in technology development, we may imagine that Alexa will evolve really fast and intriguingly. Alexa’s popularity, expanding capabilities and a massive budget made Amazon a leader and an influencer in the new voice era. No doubt, there will be a lot of cases where Alexa skill would replace the existing device, service or application. This market is huge and opened to experiments, so anyone can give it a boost. And we can build it up together, experiencing voice interfaces as a new level of human-machine interaction.
